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Payment Service Providers co-opted in VAT fraud fight

  • Dec 17, 2018 | Richard Asquith

Payment Service Providers co-opted in VAT fraud fight

The European Commission has proposed required Payment Service Providers (PSP) to surrender details of cross-border e-commerce transactions from 1 January 2022. The aim is to help tackle over €5billion in annual VAT fraud by online merchants. The EC envisages member states being able to exchange this payment data to identify EU and non-EU sellers failing to declare VAT on cross-border B2C selling.

The measure will affect the largest online PSP companies such as: PayPal; Klarna; WorldPay; Flattr; Square and Stripe. It comes as the EU also announced online marketplaces would take on VAT collections role for transactions on their platforms.

EU database for PSP VAT transaction data

The EC will create a central database for eligible PSP reporting, CESOP. This will only be accessible by member states tax authorities and Eurofisc – the network of tax experts provided for Member States to enhance their administrative cooperation in combating organised VAT fraud and especially carousel fraud.

CESOP will be based on national systems to be created in each member state. PSP’s will be required to report 10 days after the end of each calendar quarter. The local tax authorities must then pass this data on to CESOP by the 15th of the month following the quarter end.

PSP VAT information requirements

The EC’s requirement for PSP record-keeping and reporting includes the following obligations.

  • Maintaining records to identify and monitor cross-border supplies of goods and services. Domestic transactions are exempted from the requirements
  • The transactional data should include:
    • Name, address and business names of the payee
    • VAT number or other tax identification number of the recipient
    • IBAN, SWIFT code etc applied in the transaction
    • Amount paid, date, currency, country of payment and refunds
  • Electronic records of transactions must be maintained for at least two years
  • There is a reporting threshold per PSP customer of 25 transactions per year – below this level and the PSP need not make any disclosures.

The new PSP disclosure rules will come into force on 1 January 2022. They will require an amendment to the EU VAT Directive in early 2019. The measure does not go as far as the much-debated split payments mechanism, which envisaged PSP’s having to withhold the VAT element of any transaction by their seller customers, and remit this directly to the tax authorities.

VP Global Indirect Tax
Richard Asquith
VP Global Indirect Tax Richard Asquith
Richard Asquith is the former VP Global Indirect Tax at Avalara
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